Correlation Between Merck and CGX Energy
Can any of the company-specific risk be diversified away by investing in both Merck and CGX Energy at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Merck and CGX Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and CGX Energy, you can compare the effects of market volatilities on Merck and CGX Energy and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Merck with a short position of CGX Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and CGX Energy.
Diversification Opportunities for Merck and CGX Energy
-0.87 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Merck and CGX is -0.87. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and CGX Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CGX Energy and Merck is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Merck Company are associated (or correlated) with CGX Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CGX Energy has no effect on the direction of Merck i.e., Merck and CGX Energy go up and down completely randomly.
Pair Corralation between Merck and CGX Energy
Considering the 90-day investment horizon Merck Company is expected to under-perform the CGX Energy. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 3.22 times less risky than CGX Energy. The stock trades about -0.02 of its potential returns per unit of risk. The CGX Energy is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 14.00 in CGX Energy on September 1, 2024 and sell it today you would earn a total of 1.00 from holding CGX Energy or generate 7.14% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merck Company vs. CGX Energy
Performance |
| Timeline |
| Merck Company |
| CGX Energy |
Merck and CGX Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and CGX Energy
The main advantage of trading using opposite Merck and CGX Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, CGX Energy can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in CGX Energy will offset losses from the drop in CGX Energy's long position.The idea behind Merck Company and CGX Energy pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| CGX Energy vs. Avanti Energy | CGX Energy vs. Desert Mountain Energy | CGX Energy vs. Royal Helium | CGX Energy vs. Eco Oil Gas |
Check out your portfolio center.Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.
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